Quandaries & Quagmires: Duty to ‘inquire into and assess’ client representations?

On Aug. 8, 2023, the ABA House of Delegates adopted a new sentence in Model Rule of Professional Conduct 1.16(a), requiring lawyers to, “inquire into and assess the facts and circumstances of each representation [of a client] to determine whether the lawyer may accept or continue the representation.” The amendment’s proponents stated, “This Resolution also will demonstrate to the U.S. Government, … and the public that the profession takes seriously its obligations to avoid becoming involved in a client’s criminal and fraudulent conduct, including money laundering, terrorist financing, human trafficking and human rights violations, tax related crimes, sanctions evasion, and other illicit activity.” A lengthy related Comment [2] was also approved. The amendments were intended to preempt possible federal legislation that would burden lawyers more heavily than the amendments.

ABA Model Rules are not the law until they are adopted in a governing jurisdiction. However, the Model Rules provide the basic template for ethics rules in all U.S. jurisdictions. Minnesota typically adopts Model Rules amendments unless a strong reason is found for not doing so. In Minnesota, the MSBA, the Lawyers Board, and the Office of Lawyers Professional Responsibility will be studying the amendment and considering whether to recommend that the Minnesota Supreme Court adopt Model Rule 1.16(a).

Model Rule 1.16(a) determinations on whether to continue a representation are most closely related to two rules. The first of these is Rule 1.2(d): “A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyers knows is criminal or fraudulent. …” “Knows” denotes “actual knowledge of the fact in question. A person’s knowledge may be inferred from circumstances.” Rule 1.0(k). Second, Rule 1.16(b)(2) provides that a lawyer “may withdraw” if “the client persists in a course of action involving the lawyer’s services that the lawyer reasonably believes is criminal or fraudulent.” The House of Delegates rejected a proposed amendment that would have provided that a lawyer shall not represent a client if … “the client or prospective client seeks to use or persists in using the lawyer’s services to commit or further a crime or fraud.” It is far from clear why permissive withdrawal remains the Model Rule when a client persists in crime or fraud.

To explicate the nature and amount of inquiry or assessment that Rule 1.16(a) requires, the ABA adopted Comment 2, listing several risk factors. These include familiarity with the client, whether the relevant jurisdiction is high risk for money laundering, and the identities of those depositing or receiving funds into or from a lawyer’s trust account. For further guidance, Comment 2 references several publications, such as the ABA Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing.

The amendments do not attempt to tailor due diligence factors to fields of practice. But fields of practice matter in applying Rule 1.16. For example, how should criminal defense lawyers “inquire into and assess the facts and circumstances” of their representations? These lawyers often artfully and purposively refrain from having their clients tell them everything. Due diligence does not combine easily with studied ignorance. And a criminal defense lawyer must offer defendant’s testimony even though the lawyer “reasonably believes [the testimony] is false,” unless the lawyer actually knows the testimony is false.¹

The ABA also did not attempt a thorough integration of the new rule with existing rules or with common law. This produces major problems, because the Rules generally incorporate the conduct of “a reasonably prudent and competent lawyer,” and such lawyers have customarily trusted their clients without undertaking due diligence investigations.

Courts have held that a lawyer generally may rely on clients for the facts of a case. One court in a criminal case with a lawyer-defendant affirmed that a jury should have heard a defense expert’s testimony, including that “because of the duty of loyalty, lawyers ‘tend to very strongly believe [their] clients’ and, at least in the civil bar, lawyers ‘tend not, by and large, to be immediately suspicious of [clients] if they ask us to do things.’” In this case, the prosecution expert also testified that lawyers could give clients the benefit of the doubt regarding veracity of client statements.²

The proponents of the Model Rule 1.16 amendments stated, “These are not new obligations. Lawyers already perform these inquiries and assessments every day to meet their ethical requirements.”³ If the amendments did not add any “new obligations,” one wonders why federal legislators would desist from imposing genuinely new obligations on lawyers. It is nonetheless true, and important, that good lawyers do a certain amount of client-focused due diligence, but it is also true that the amendments substantially expands those efforts. Three examples illustrate the point.

First, Rule 1.1, Comment 5 states, “Competent handling of a particular matter includes inquiry into and analysis of the factual and legal elements of the problem … .” However, this Comment focuses on problem-solving, not on the bona fides of the client.

Second, Rule 1.0(k) provides a definition that includes an investigative duty that is akin to new Model Rule 1.16(a). “‘Reasonably should know’ … denotes that a lawyer of reasonable prudence and competence would ascertain the matter in question.” However, the defined term, “reasonably should know,” appears only a few times in current rules, and never as a general due diligence duty regarding a client. In the Model Rule amendments, equivalents to “ascertain” — “inquire” and “assess” — are required from beginning to end of every representation.

Third, malpractice insurers have counseled their insureds to scrutinize clients, because “unworthy clients” are arguably the greatest cause of claims and losses. Lawyers should think at least twice before taking on, or continuing to represent, a client who gives evidence of being dishonest, disorganized, litigious, pugnacious, or lacking experience for the underlying matter.

On the other hand, current Minnesota rules provide that lawyers may rely on clients to a large extent. For example, Rule 3.3 Comment 8 states, “A lawyer’s reasonable belief that evidence is false does not preclude its presentation to the trier of fact … although a lawyer should resolve doubts about the veracity of testimony or other evidence in favor of the client, the lawyer cannot ignore an obvious falsehood.” How does a lawyer who “should resolve doubts … in favor of the client” also independently and objectively “inquire into” and “assess” the facts of the matter?

Some opponents of the proposed amendments were concerned that third parties could claim in civil litigation that opposing counsel failed to exercise due diligence in representation of a client. Current Minnesota law holds there is no such duty. In a leading case, the non-client plaintiff claimed a lawyer has a legal duty to independently investigate the assertions of his clients, to determine whether those assertions were true, and to communicate that information to the adversary. The Court firmly rejected that idea: “We cannot recognize such a duty. It would undermine the attorney’s duty to zealously represent the client and resolve all doubts in favor of the client. It would also undermine the trust between the attorney and client, which is an essential element of the relationship.”⁴

Precedent exists for amending client misconduct-related ethics rules to avoid or lessen the impact of proposed federal legislation on lawyers. About 20 years ago, after the frauds and implosions of prominent entities like Enron and Arthur Andersen, authorities asked, “Where were the lawyers?” The Congress enacted the Sarbanes-Oxley Act. The Securities & Exchange Commission adopted rules requiring reporting by lawyers for public companies of certain insider misconduct. The ABA amended Model Rules 1.6 (Confidentiality) and 1.13 (Organization as Client) to permit and in some instances require lawyers to report fraud and other misconduct by clients and their representatives. With certain variations, in 2005 Minnesota followed the ABA’s lead.

Should Minnesota again generally follow the ABA’s lead? A firm answer to this question should await the deliberations of the MSBA, OLPR, and LPRB. Those deliberations will no doubt consider whether Minnesota lawyers have a money-laundering problem that needs regulation and whether Minnesota’s action would affect the main purpose for which the ABA adopted the rule — preempting federal legislation.

William J. Wernz is the author of the online treatise, “Minnesota Legal Ethics.” He has been a member of the Board on Judicial Standards, and he has served as Dorsey & Whitney’s ethics partner and as director of the Office of Lawyers Professional Responsibility.

Endnotes

1. Rule 3.3(b), Minn. R. Prof. Conduct.
2. United States v. Kellington, 217 F.3d 1084, 1190 (9th Cir. 2000). See also United States v. Wuliger, 981 F.2d 1497, 1505 (6th Cir. 1992), cert. denied, 510 U.S. 1191 (1994) (“Although an attorney must not turn a blind eye to the obvious, he should be able to give his clients the benefit of the doubt.”).
3. Revised Report to the House of Delegates (Aug. 2023) at 6.
4. L & H Airco, Inc. v. Rapistan Corp., 446 N.W.2d 372, 379 (Minn. 1989).